Inventories are materials and supplies that a business or institution carry either for sale or to provide inputs or supplies to the production process. All businesses and institutions require inventories . Often they are a substantial part of total assets. Financially, inventories are very important to manufacturing companies. On the balance sheet, they usually represent from 20% to 60% of total assets.
Inventory Management ties up capital, requires handling, uses storage space, deteriorates, sometimes becomes obsolete, requires insurance, incurs taxes, can be stolen or gets lost. Inventory must be considered at each of the planning levels with production planning concerned with overall inventory, master planning with end items and materials requirements planning with components parts and raw material. The primary function of inventory is buffering and decoupling. It serves as a shock absorber between customer demand and the manufacturer’s production capability, between input materials required for an operation and the output of the preceding operation, between the manufacturing process and the supplier of raw materials.
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